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Housing market rebounding slowly

Article Date: 
22 June, 2012 (All day)

Promising statistics signal a housing market on the rebound, but economic headwinds are keeping markets from improving quickly, according to Harvard University’s annual State of the Nation’s Housing report, released on Thursday. “With new home inventories at record lows, unless the broader economy goes into a tailspin, stronger sales should further stabilize prices and pave the way for a pickup in single-family housing construction over the course of 2012,” said Eric S. Belsky, managing director of Harvard’s Joint Center for Housing Studies, in a news release. 
Yet there are plenty of obstacles working against the market getting back to a healthy state, not to mention that the limping housing market has a long way to go from the lows it reached. “Never before has a downturn been so strong and a recovery so weak,” said Dan McCue, research manager for the Joint Center.
The good with the bad
First, the good news: Rental vacancies are falling, rents are increasing and multifamily construction is on the rise, the report points out. Existing-home sales were up 5.2 percent in the first quarter, compared with year-ago levels, and sales of newly constructed homes were up 16.7 percent in the first quarter.
Affordability is high for those interested in buying a home. Interest rates on 30-year fixed-rate mortgages fell below 4 percent in the first quarter, according to Freddie Mac’s rate survey. Assuming a 20 percent down payment and a 30-year fixed-rate mortgage, the monthly principal and interest payment for a median priced home was $669 in 2011, down 6.6 percent from a year earlier. Indeed, some home buyers—many of them young adults—may soon finally feel comfortable enough to buy a home. Many have stayed on the sidelines for a while now, waiting for the job market to improve. 
Now, the reality: Even those confident enough to make a purchase in today’s market may face issues when trying to close the deal. The report points out that 33 percent of member brokers of the National Association of Realtors reported contract failures in December—a jump from 9 percent a year earlier—due to mortgage applications being denied or the appraised value of the home being lower than the negotiated price. 
Plus, mortgage denial rates for those attempting the purchase of a home with a conventional mortgage rose significantly for minorities over the past several years, according to the report. Denial rates for Hispanics rose to 27 percent of all loans in 2010, up from 19 percent in 2004. Denial rates rose to 38 percent for blacks in 2010, up from 23 percent in 2004. Meanwhile, denial rates for white borrowers rose to 15 percent from 12 percent. 
There’s this familiar theme, too: Many people who would like to sell their home are stuck because they owe more on their home than it’s worth. One in five mortgage loans were underwater in the fourth quarter, according to the report, which cites figures from CoreLogic. 
On top of all that, there’s a nagging fear about what the so-called shadow inventory will mean for the market once the banks list a backlog of foreclosures for sale. While for-sale housing inventories have dropped recently, about 2 million homes were in some stage of foreclosure in early 2012 and 7.4 percent of all mortgages in the country were 90 days or more past due or in foreclosure in the first quarter of 2012. All of these could potentially hit the housing market as inventory, which could put downward pressure on housing prices. 
 “There’s a national obsession with the real-estate market,” said Errol Samuelson, president of Realtor.com, a home listings website. “It’s interesting that people thought their own situation was much better but the general atmosphere was just as bad as it ever was. There’s generalized anxiety about the market.” Of course, there are other possible speed bumps housing could hit as well. The health and stability of the general economy will play a role in the recovery, as will improvement in employment. 
Allure of home 
ownership 
More people are passing on home ownership these days, quantified by the 65.4 percent home ownership rate seen in the first quarter. And average annual household growth is abysmal, at about 568,000 between 2007 and 2011—less than half the pace seen during the first half of the 2000s, according to the Harvard report. Yet studies have shown Americans still desire to own a home. 
Fannie Mae’s National Housing Survey from the fourth quarter of 2011 found that 86 percent of renters between the ages of 18 and 34 want to be owners someday—but not for the financial reasons that seduced many Americans to grab for a piece of real estate as the bubble heated up. “The top reasons for being a homeowner weren’t financial at all,” McCue said. “It’s more of an issue of being able to control your surroundings and live in the neighborhood you want to live in and control your costs.”